January 09, 2020

Senators Warren and Brown Raise Alarms Over IRS's Decision to Allow Private Debt Collectors Direct Access to Taxpayer Bank Accounts

The risky practice leaves taxpayers vulnerable to abuse and their data susceptible to exposure

"Taxpayers should not have to risk their financial security in order to pay their tax debts"

Text of the Letter (PDF)

Washington, DC - United States Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee Subcommittee on Financial Institutions and Consumer Protections, and Senator Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, sent a letter to Internal Revenue Service (IRS) Commissioner Charles Rettig raising alarm about the agency's October 2019 decision to introduce preauthorized direct debit as a new payment method for the Private Debt Collection (PDC) program, allowing Private Collection Agencies (PCAs) direct access to taxpayers' financial account information to set up automatic deductions. This is a reversal of long-standing IRS policy that taxpayers should only provide their financial account information directly to the IRS.

The Fixing America's Surface Transportation (FAST) Act of 2015, passed by Congress in December 2015, required the IRS to use private debt collectors. The agency began referring some taxpayers who were behind on their taxes to private debt collectors in April 2017.

The private debt collection program has been troubled from the start. Oversight conducted by Senator Warren soon after the PDC program started revealed that private debt collectors appeared to be pressuring taxpayers into risky financial transactions, and violating the Fair Debt Collection Practices Act and provisions of the Internal Revenue Code. In October, the IRS announced that private debt collectors would be allowed to collect personal bank account information from taxpayers, allowing the private companies to directly deduct payments from the taxpayer's account on a preauthorized schedule. This payment method has already been banned by the Federal Trade Commission (FTC) for telemarketers due to its high risk to consumers.

"This is a dangerous practice that has been abused by debt collectors to rip off consumers-and is outlawed in some cases by the Federal Trade Commission (FTC)," wrote the senators. "We have already called for your agency to end the private debt collection program, which is an ineffective giveaway to private companies that balances its budget on the backs of low-income taxpayers."

Taxpayers already have multiple options to pay their taxes, and instead of trying to fix the problems with the private debt collection program, the IRS is now adding another layer of risk to taxpayers by allowing private debt collectors to collect taxpayers' bank account and routing numbers so that debt collectors can automatically debit a taxpayer's account. Consumer protection experts have criticized this payment method because it lacks the protections guaranteed by other methods like credit cards and Automated Clearing House transactions, leaving taxpayers exposed to abuse and with little recourse. This decision may also subject taxpayers to increased risk of identity theft, as several private debt collectors were found to have failed to address critical and high-risk vulnerabilities on their servers within required time periods.

"Taxpayers should not have to risk their financial security in order to pay their tax debts. The decision by the IRS to allow debt collectors to use preauthorized direct debits adds an unnecessary risk for low-income taxpayers to an already failing program," wrote the senators.

The senators have requested answers to their questions on the IRS's plans to protect taxpayers no later than January 22, 2020.

In February 2018, Senator Warren introduced legislation with Senators Ben Cardin (D-Md.) and Brown to repeal authority from the IRS to contract with PCAs to collect unpaid taxes. In June 2017, Senator Warren led a letter to private debt collectors with IRS contracts about abusive debt collection practices revealed in collector call scripts. In March 2018, Senator Warren wrote a letter to the IRS, cosigned by Senators Richard Blumenthal (D-Conn.), Bernard Sanders (I-Vt.), and Bill Nelson (D-Fla.), asking about whether the PDC program unduly burdened taxpayers affected by natural disasters.